Negotiating for SUCCESS

C larke American Checks, Inc. is the quintessential American business. Founded in 1874, San Antonio-based Clarke American is one of the nation's largest printers of checks and other so-called "security documents" for the financial sector. And, after all, the proliferation of checks is a truly American phenomenon - the 50 billion or so checks written here last year outnumbered the total written in the rest of the industrialized world by a factor of three or more.

Considering the stodgy image of checks in this era of high-tech wizardry, it might seem strange to some that Clarke American is among the latest recipients of the Malcolm Baldrige National Quality Award, an honor bestowed by the National Institute of Standards and Technology (NIST). After all, how much technological know-how does it take to print checks?

You might be surprised. In fact, the application of technology has everything to do with the expanding role of checks, and check companies, in America today.

I was invited to meet with executives of Clarke American on the morning in March when the awards were presented by President Bush and Secretary of Commerce Donald Evans. Charles Korbell, President and CEO, talked a lot about how Clarke American uses advanced automation and communications tools to assure the quickest turnaround of check orders. He also explained how the company had diversified over the years to offer a portfolio of services to financial firms, including call centers.

Korbell spoke mostly about the company's "First in Service" program. It was an outgrowth of a corporate realization in the early 1990s that excess capacity in check manufacturing made it difficult to compete on price, he said.

"That's when we made the all-out commitment to a 'First in Service' approach to business excellence," Korbell said.

The results have been impressive by any standard. Since 1996, Clarke American has boosted its share of the check-printing market by 50%; as of year-end 2001, the company had a 26% share of the market. Since 1997, business partner evaluations consistently have shown satisfaction rates of 96%.

In 2001, more than 20,000 ideas from Clarke American employees were implemented for an estimated cost savings to the company of $10 million. Overall employee satisfaction reached 84% in 2000; that same year, Clarke American said revenues earned per employee rose 84%. Annual growth in company revenues was 16% in 2000, up from 4.2% in 1996.

"We have a culture that accepts change as a constant and where status quo is a problem. The outcome is continuous and breakthrough improvements that drive results and inspire our associates to stretch for even higher goals," Korbell said in remarks during the awards ceremony.

In the payments arena, this is a crucial differentiator. Although checks reign supreme in the U.S. economy, changes in payments habits and related technologies continue apace. In 1972, few us had any true sense of electronic payments. By 2000, we were initiating nearly 30 billion electronic payments a year, according to the Federal Reserve. Some Background Malcolm Baldrige was U.S. Secretary of Commerce when he died unexpectedly in 1987. During his time in Washington he had been a vocal advocate of initiatives that could breathe new life into the sagging competitiveness of U.S. businesses. Shortly after his death, Congress passed a bill establishing the Malcolm Baldrige Quality Award to recognize quality and achievements in American business.

Prospective award winners devote significant time and energy documenting and implementing plans and improvements in the areas of leadership, strategic planning, customer and market focus, information and analysis, human resources, process management and results.

Clarke American was the lone recipient of the 2001 Baldrige Award for the U.S. manufacturing sector. Past recipients include Federal Express, Xerox Corp. and IBM.

In addition to Clarke American, winners of the 2001 Baldrige Award included Pal's Sudden Service, a Tennessee-based fast-food chain, and several public-education organizations.

Commerce Secretary Evans, in remarks during the March awards ceremony, said the group has set an example to be emulated by other American businesses. He said an index of stocks made up of publicly traded Baldrige Award recipients consistently outperforms the Standard & Poor's 500.

"While performance in the stock market is only one indicator of success, this study and others show that businesses that seek excellence in everything they do can achieve success in many areas, including the bottom line," Evans said.

Checks and Balances It's been written here before, but it deserves repeating: Checks will not be eliminated from the U.S. economy, at least not in our lifetimes. The fact that a check company is the lone manufacturing company to receive the Baldrige Award for 2001 - a year that saw the demise of scores of dot.coms after they were expected to fuel the new "digital economy" - is testimony to the resilience of check payments in America.

Some observers see it as a shortcoming. "There is a major discrepancy in the U.S. between the wide use of the Internet to conduct business and the sluggish adoption of e-payments. In non-face-to-face payments, the U.S. lags years behind other advanced economies," complained Gwenn Bezard, author of a report released in March by Celent Communications, a New York-based research and consulting firm.

But wait just a minute. Today, the nation's three largest check printers, combined, control 95% of a market that generates $1.8 billion in U.S. revenues. Revenues at Clarke American last year exceeded $460 million.

Deluxe Corp., located near Minneapolis, is the largest check printer, with more than $1.2 billion in annual revenues. In 2000, Deluxe spun off its non-check payments businesses (e.g.: EFT network and ACH processing) into an independent company, eFunds Corp. Revenues at eFunds dipped slightly last year, to $513.6 million from $518.2 million the year before.

Atlanta-based John H. Harland Co., which places third in check printing market share, has diversified substantially over the last several years. Company officials credit the diversification with increasing revenues by about 3% in 2000, for a total of $720.7 million.

Any way you look at it, check printing and services are a huge and potentially lucrative segment of the U.S. economy. Others in the payments arena - especially new and emerging e-payments companies - would be well served to follow the business quality example set by Clarke American.